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63 terms

economics study guides

STUDY
PLAY
the most important determinant of consumer spending is
the level of income
the MPC can be defined as that fraction of a
change in income that is spent
a decline in disposable income
decreases consumption by moving downward along a specific consumption schedule
the consumption schedule is such that
the MPC is constant and the APC declines as income rises
the size of the MPC is assumed to be
greater than zero, but less than one
as disposable income increases, consumption
and saving both increase
what will cause a movement down along an economy's consumption schedule?
a decrease in disposable income
dissaving occurs where
consumption exceeds income.
if the marginal propensity to consume is .9, than the marginal propensity to save must be
.1
if the saving schedule is a straight line, the
MPS must be constant
the relationship between the real interest rate and investment is shown by the
investment demand schedule
the immediate determinants of investment spending are the
expected rate of return on capital goods and the real interest rate
the real interest rate is
the percentage increase in purchasing power that the lender receives on a loan
a high rate of inflation is likely to cause a
high nominal interest rate
the multiplier is useful in determining the
change in GDP resulting from a change in spending
the multiplier is defined as
change in GDP/initail change in spending
the multiplier
can be found by taking the reciprocal of the mps
the practical significance of the multiplier is that it
magnifies initial changes in spending into larger changes in GDP
in which industry or sector of the economy will business cycle fluctuations likely have the greatest effect on output
capital goods
the phase of the business cycle in which real GDP declines is called
a recession
the phase of the business cycle in which real GDP is at a minimum is called
the trough
the production of durable goods varies more than the production of nondurable goods because
durable purchases can wait
the United States economy is considered to be at full employment when
about 4-5 percent of the labor force is unemployed
to be officially unemployed a person must
be in the labor force
the labor force includes
employed workers and persons who are offically unemployed
structural unemployment
may involve a locational mismatch between unemployed workers and job openings
which of the following consititue the types of unemployment ocurring at the natural rate of unemployment
structural and frictional unemployment
the GDP gap measures the difference between
actual GDP and potential GDP
A large negative GDP gap implies
a high rate of unemployment
Inflation means that
prices in the aggregate are rising, although some particular prices may be falling
demand-pull inflation
occurs when total spending exceeds the economys ability to provide output at the existing price level
cost-push inflation may be caused by
a negative supply shock
rising per-unit production costs are most directly associated with
cost-push inflation
real income is found by
dividing nominal income by the price index
cost-of-living adjustment clauses
tie wage increases to changes in the price level
inflation is undesirable because it
arbitrarily redistributes real income and wealth
A nations gross domestic product
is the dollar value of all final output produced within the borders of the nation
GDP is the
monetary value of all final goods and services produced with the borders of a nation in a particular year
by summing the dollar value of all market transactions in the economy we would
obtain a sum substantially larger than the GDP
final goods and services refer to
goods and services purchased by ultimate users, rather than for resale or further processing
If depreciation (consumption of fixed capital) exceeds domestic investment, we can conclude that
net investment is negative
suppose that inventories were $400 billion in 2007 and $50 billion in 2008. In 2008 accountants would
add $10 billion to other elements of investment in calculating total investment
in calculating GDP, governmental tranfer payments, such as social security or unemployment compensation, are
not counted
the largest component of total expenditures in the United States is
consumption
Government purchases include government spending on
government consumption goods and public capital goods
what best defines disposable income
income received by households less personal taxes
real GDP refers to
GDP data that has been adjusted for changes in the price level
The aggregate demand curve
shows the amount of real output that will be purchased at each possible price level
the interest-rate effect suggest that
an increase in the price level will increase the demand for moneny, increase interest rates, and decrease consumption and investment spending
the real-balances effect indicates that
a higher price level will decrease the real value of many financial assets and therefore reduce spending
if the price level increase in the united states relative to foreign countries, then american consumers will purchase foreign goods and fewer U.S. goods is
the foreign purchases effect
the factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the
determinants of aggregate demand
a decline in invest will shift the AD curve to the
left by a multiple of the change in investment
if investment increases by $10 billion and the economys MPC is .8, the aggegate demand curve will shift
rightward by $50 billion at each price level
which of the following would most likely shift the aggregate demand curve to the right
An increase in stock prices that increases consumer wealth
in an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. we would expect this to
increase aggregate demand
what percentage of the average firm's cost are accounted for by wage and salaries
75
the aggregate supply curve
show s the various amounts of real output that businesses will produce at each price level
the aggregate supply curve is upsloping because
per-unit production cost rise as the economy moves toward and beyond its full-employment real output
productivity measures
real output per unit of input
per-unit production cost is
total input cost dived by units of output
other things equal, a reduction in personal and business taxes can be expected to
increase both aggregate demand and aggregate supply
efficiency wages are
above-market-wages that bring forth so much added work effort that per-unit production cost are lower than at market wages